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LITTLE FALLS, N.J. -- In mature categories that has evidenced little growth over the past five years, the traditional sales channels for cosmetics and toiletries -- especially food and department stores -- have experienced declining growth rates and market share, while other channels are gaining, according to a study conducted by international business consulting and market research firm Kline & Co., based here.

August 30, 2005, 08:00 pm

LITTLE FALLS, N.J. -- In mature categories that has evidenced little growth over the past five years, the traditional sales channels for cosmetics and toiletries -- especially food and department stores -- have experienced declining growth rates and market share, while other channels are gaining, according to a study conducted by international business consulting and market research firm Kline & Co., based here.

Food stores have been particularly hard hit, suffering a 3 percent average annual decline in sales of cosmetics and toiletries over the past five years, notes the firm's report, "Beauty Retailing USA 2004."

"While food stores could once count on one-stop shoppers to buy their beauty products along with the groceries, they're now conceding these sales to big-box stores like Wal-Mart and Target," explained Lenka Contreras, v.p. and head of the Consumer Products practice for Kline's research division.

As drug stores and department stores have seen sales growth rates for cosmetics and toiletries falter, marketers have turned to other retail channels to compensate. The study found that dollar stores have boosted their cosmetics and toiletries sales by over 16 percent annually from 1999 to 2004, although from a small base.

"The sheer number of dollar stores opened over the last five years is a major factor, but the bargain-hunting mentality in a slower economy is driving consumers to try to find their favorite products at lower prices," said Contreras, who added that a similar trend is occurring in the warehouse club channel, on a smaller scale. While large-unit sizes in club stores offer higher price points than those of dollar stores, customers still think they're getting a bargain, and out-of-pocket spending is higher, contributing to overall growth of almost 7 percent for cosmetics and toiletries sales in club stores.

Even though these market share shifts among the trade channels aren't extreme, according to Kline & Co., they reflect important trends over the short term and should prompt cosmetic and toiletry marketers to consider carefully where they allocate distribution of their products.